CROP INSURANCE
MAKING GOOD BUSINESS SENSE
Speaker: Archie Cumbee
Risk Management Agency
Risk Management
Specialist
Raleigh, NC
919.875.4880
Risk Management Agency (RMA), USDA
·
1938
– Federal Crop Insurance Corp (FCIC) created by Congress.
·
1980
– FCIC Act amended to include:
1.
Extensive
expansion into all states and major crops.
2.
Crop
insurance sales offered through private insurance agents.
·
1996
– FAIR Act, FCIC renamed Risk Management Agency – RMA.
Basic Features of Crop Insurance
·
Covers
crop loss due to unavoidable causes:
1.
Adverse
weather (drought, hail, freeze, excess rain, wind, etc.).
2.
Insects,
disease, fire, wildlife, earthquake, volcanic eruption.
3.
Failure
of Irrigation Supply (if due to insurable cause).
·
Loss
occurs if actual production is less than guarantee if due to insurable cause.
·
Insurance
Guarantee (Coverage)
1.
Based
on your own yields (APH: Actual Production History).
2.
You
choose level of protection desired from 50% to 75% of APH yield per acre
·
Ex.
– CORN: 100 bu APH X .65 = 65 bu/ac guarantee.
3. Guarantee per acre: bushels, pounds, cwt,
tons, etc.
·
Price
Election:
1.
Price
paid per bushel, pound, cwt, etc. in case of loss.
2.
Determined
from National Agricultural Statistics Service (NASS) price data.
3.
Insured
may choose a lesser percentage of the full price.
·
Amount
of Insurance (Liability) = Guarantee X Price X Acres:
·
Ex.
– 65 bu/ac X $2.10 = $136 per acre.
·
Catastrophic
(CAT) Coverage
1.
50%
APH X 55% of Price Election:
·
Ex.
– 100 bu/ac X 50% X ($2.10 X .55) = $58 per acre coverage.
2. Fully subsidized (you pay a fee of $60 per
crop).
3. CAT fees waived for limited resource
farmers.
·
BUY-UP
Coverage
1.
50,
5, 60, 65, 70, or 75% of the APH yield.
2.
Insured
may choose less than full price election.
3.
Subsidized
(insured pays only part of premium).
·
25%
additional discount for crop year2000.
Other Features
·
Unit:
the area considered when determining loss.
1.
Basic
unit: all your acreage of the crop in the county.
2.
Optional
unit: by Farm Serial Number.
·
Other
provision include (depending on crop):
1.
Adjustments
for quality.
2.
Prevented
and/or Late Planting Provisions.
3.
Replant
provision.
·
Delayed
Premium Payments.
1.
Due
in fall.
Some Benefits of Crop Insurance
·
Collateral
for operating loans.
·
May
be used for hedging purposes.
·
Reduces
the need for liquid cash reserves.
·
Reduces
the need for emergency borrowing following a bad crop year.
·
Improves
credit worthiness.
·
Premium
payments are tax deductible.
Plans of Insurance
·
APH
– Actual Production History.
1.
Production
Guarantee.
2.
No
guarantee against price or market movement.
·
CRC
– Crop Revenue Coverage.
1.
Revenue
Guarantee.
2.
Guarantees
against drop in price as well as yield.
·
GRP
– Group Risk Plan.
1.
Based
on county yield.
EXAMPLES
Peanuts
Southampton
County 2950
lbs/acre Average Yield
65%
Coverage Level
$.31 Price Election
·
2,950
X .65 = 1,918 lbs guaranteed per acre.
·
918
lbs produced per acre.
1.
1,918
– 918 = 1000 lbs per acre loss.
·
1,000
lbs X .31 = $310 indemnity per acre.
·
Your
subsidized premium: $13 per acre.
·
$310
- $13 - $297 net indemnity per acre.
APH – COTTON
Southampton County 700 lbs/ac Average Yield
65%
Coverage Level $.66
Price Election
·
700
X .65 – 455 lbs guaranteed per acre.
·
155
lbs produced per acre.
1.
455
– 155 = 300 lbs per acre loss.
·
300
lbs X .66 - $198 indemnity per acre.
·
Your
subsidized premium: $10 per acre.
·
$198
- $10 = $188 net indemnity per acre.
CRC – COTTON
Southampton
County 700
lbs/ac Average Yield 65%
Coverage Level
.$.62 lb Base Price $.53
Harvest Price
·
700
X 65% = 455 lbs guaranteed per acre.
·
455
X $.62 = $282 guaranteed dollars per acre.
·
155lbs
produced per acre.
1.
$155
X $.53 = $82 actual revenue.
2.
$282
- $82 = $200 loss per acre.
·
Your
subsidized premium: $12 per acre.
·
$200
- $12 = $188 net indemnity per acre.
APH – CORN
Southampton County 100 bu/ac Average Yield
65%
Coverage Level $2.10
Price Election
·
100
X .65 = 65 bu guaranteed per acre.
·
25
bu produced per acre.
1.
65
– 25 = 40 bu per acre loss.
·
40
bu X $2.10 = $84 indemnity per acre.
·
Your
subsidized premium: $4 per acre.
·
$84
- $4 = $80 net indemnity per acre.
CRC – CORN
Southampton
County 100
bu/ac Average Yield 65%
Coverage Level
$2.40 bu Base Price $2.10
Harvest Price
·
100
X 65% = 65 bu guaranteed per acre.
·
65
X $2.40 = $156 guaranteed dollars per acre.
·
25
bu produced per acre.
1.
$25
X $2.14 = $54 actual revenue.
2.
$156
- $54 = $102 loss per acre.
·
Your
subsidized premium: $7 per acre.
·
$102
- $7 = $95 net indemnity per acre.
RMA Fact Sheets
Other RMA Information
Crop insurance
provides peace of mind, allowing producers to sleep better knowing their
investments are covered.
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